Investors not necessarily pushing first home buyers out of the market: BIS Shrapnel's Robert Mellor
It's not just investor activity, but changing benefits and an increased willingness to sit out of the property game that may be keeping first home buyers out of the market, according to one economist.
At BIS Shrapnel's Melbourne business forecasting conference earlier this week, managing director Robert Mellor commented that while investor activity did put upward pressure on prices, particularly in Sydney, there were other factors which are contributing to declining first home buyer numbers.
He cited the change in some first home buyer benefits as a catalyst for a recent shift in purchasing activity among the demographic. In New South Wales, first home buyers formerly received full stamp duty concessions on established homes, which Mellor explained equated to about a $17,000 benefit on a $550,000 purchase. The scheme ended in January 2012.
"So those sort of changes mean for many first home buyers, certainly in NSW, you suddenly had to find another $20,000," said Mellor.
"So I'd argue the point that one of the problems for potential first home buyers was the change in the rules where grants and stamp duty benefits were only provided for new dwellings, rather than established dwellings.
"They effectively had to find another $20,000 fairly quickly."
The change, Mellor said, may have encouraged potential first home buyers to "sit out of the market for another year" to save more – only to find home price growth eclipsing their increased savings.
"And you've suddenly found that instead of trying to buy a $550,000 property, you were paying $630,000," he explained.
"And that...increase in price obviously totally swamped the lost value of the grants."
First home buyers who were unable to anticipate recent price growth, particularly in Sydney, may have found themselves priced out of the market. After a period of suppressed house prices, Mellor explained, many inexperienced buyers would not have expected prices to escalate in Sydney as they have in recent years. He also acknowledged the Australian Bureau of Statistics' admission that its first home buyer figures may be inaccurate.
"Everybody thought three years ago Sydney house prices were already very high. Well they weren't – they were undervalued in a long term context," said Mellor. However, he said that although Melbourne had not experienced the same price strength as Sydney, a similar situation had occurred when the Victorian government abolished its first home owner grant for established properties. Nevertheless, the declines in first home buyers numbers recorded in New South Wales and Queensland have been "much more severe".
The BIS Shrapnel head also attributed some of the lowered participation of first home buyers to a generational shift in attitudes towards home ownership, with uncertainty about future employment and lifestyles leading some to put off purchasing a home.
Mellor likened the relationship between investors and first home buyers to a "chicken and the egg kind of situation".
"Is it the investors forcing first home buyers out of the market? I would say they were out of the market simply because of the change in the conditions for them, and then once they sat on the sidelines, they couldn't purchase," said Mellor.
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